The Pound Canadian Dollar (GBP/CAD) exchange rate managed to waver higher last week, although UK economic headwinds kept a tight lid on the Pound’s (GBP) gains.
So far this week the volatility has continued, with Sterling slipping on Monday and then recovering as wage growth exceeded forecasts on Tuesday.
What’s Been Happening: GBP/CAD Grinds Higher despite UK Economy Woes
GBP/CAD fluctuated early last week as oil market volatility caused some turbulence for the crude-linked Canadian Dollar (CAD). CAD’s positive correlation with the US Dollar (USD) eventually dragged the ‘Loonie’ lower.
Ongoing weakness in USD kept CAD on the defensive through the week, although the Pound also faced headwinds. Strike action intensified across the UK, while businesses grew concerned about the government’s plan to scale back energy support from April. This limited Sterling’s gains against the Canadian Dollar.
Although oil prices ticked higher as the week went on, the ‘Loonie’ failed to make gains. A cooldown in US inflation dented Canadian government bond yields, thereby pressuring CAD.
Meanwhile, the Pound enjoyed a surprise rise in UK GDP on Friday, helping GBP/CAD consolidate the week’s modest gains.
Three Things to Watch Out for This Week
- UK Inflation
The UK CPI this week is expected to show a modest slowdown. If inflation cools more than forecast, as it did last month, a decline in Bank of England (BoE) interest rate rise bets could hurt Sterling.
- Canadian Inflation
Likewise, Canadian inflation is forecast to decelerate, which may dent CAD by reducing Bank of Canada (BoC) rate hike prospects.
- UK and CA Retail Sales
On Friday, retail sales reports for the UK in December and Canada in November are out. Economists expect UK sales to have recovered and Canadian sales to have shrunk, so GBP/CAD could catch some bids.
GBP/CAD Forecast
This week could bring big swings in the Pound Canadian Dollar exchange rate, considering the high-impact data releases on the calendar, so expect some volatility. Overall, Sterling could strengthen if data prints as forecast and USD weakness continues to undermine CAD.